Written By: Glenn Michaels, Op-Ed Writer
On September 3, 2013, HUD issued two mortgagee letters numbered 2013 – 27 and 2013 – 28 along with an addendum changing the Home Equity Conversion Mortgage Program (HECM) or commonly called “Reverse” mortgage program. These changes go into effect September 30, 2013 and January 14, 2014. These changes are necessary due to so many defaulted reverse mortgages and their run on the FHA insurance fund.
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You may wonder, if the borrower does not pay the mortgage holder, why are there defaulted reverse mortgages. The way the program is currently set up there was no regard for the borrower’s credit. If a borrower was in foreclosure and there was enough equity and the borrower was 62 years of age or more you could take the borrower out of foreclosure with a reverse mortgage. In addition no one cared how much income the senior has or how much assets the senior had. The big problem is that most seniors did not have enough funds or assets to pay their real estate taxes and homeowner’s insurance/flood insurance never mind any required repairs.
Noticed all the TV pitchmen have quieted down about applying for a reverse mortgage or about obtaining information for a reverse mortgage. There are so many changes to the reverse mortgage program that many of our fellow mortgage loan originators are going to feel it in their pockets as the number of applications for the program dwindles. Loan officers who only concentrated on reverse mortgages need to learn other mortgage programs or they will earn little or no money from just doing reverse mortgages.
The FHA Direct Endorsed Underwriter is now the only person allowed to underwrite the reverse mortgage. The automated underwriting systems together with TOTAL Scorecard are not permitted to underwrite reverse mortgage applications.
Some of the many changes are going into effect are minimum credit standards, residual income calculations similar to the VA residual calculation (financial assessment requirements). The limits on disbursements are also going in to effect. The mortgage insurance premiums (MIP) are also changing both upfront and annually.
There are so many changes going through and so many advisements going through that it is impossible to summarize them all in one or two pages as I usually write. One mortgagee letter was 39 pages of changes and advisements followed by another two page mortgagee letter with a 59 page addendum of instructions and guidance.
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The changes are being phased in with case number assignments issued on September 30, 2013 and issued on January 14, 2014 unless there is delay along the way.
If your company offers the FHA Home Equity Conversion Mortgage (HECM) program make sure you pull the two mortgagee letters and addendum as your program is changing right before your eyes.
If you have any potential HECM clients obtain a case number now or before September 30, 2013 or the new rules apply.
About The Author
Glenn Michaels - As an NAMP® Opinion Editorial Contributor, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years.
